Quarterly report pursuant to Section 13 or 15(d)

Securitizations and Other Variable Interest Entities

v2.4.0.6
Securitizations and Other Variable Interest Entities
3 Months Ended
Mar. 31, 2012
Securitizations and Other Variable Interest Entities [Abstract]  
Securitizations And Other Variable Interest Entities Disclosure
NOTE 7 – Securitizations and Other Variable Interest Entities

The Corporation utilizes VIEs in the ordinary course of business to support its own and its customers’ financing and investing needs. The Corporation routinely securitizes loans and debt securities using VIEs as a source of funding for the Corporation and as a means of transferring the economic risk of the loans or debt securities to third parties. The assets are transferred into a trust or other securitization vehicle such that the assets are legally isolated from the creditors of the Corporation and are not available to satisfy its obligations. These assets can only be used to settle obligations of the trust or other securitization vehicle. The Corporation also administers, structures or invests in other VIEs including CDOs, investment vehicles and other entities. For additional information on the Corporation’s utilization of VIEs, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation's 2011 Annual Report on Form 10-K.

The tables within this Note present the assets and liabilities of consolidated and unconsolidated VIEs at March 31, 2012 and December 31, 2011, in situations where the Corporation has continuing involvement with transferred assets or if the Corporation otherwise has a variable interest in the VIE. The tables also present the Corporation’s maximum loss exposure at March 31, 2012 and December 31, 2011 resulting from its involvement with consolidated VIEs and unconsolidated VIEs in which the Corporation holds a variable interest. The Corporation’s maximum loss exposure is based on the unlikely event that all of the assets in the VIEs become worthless and incorporates not only potential losses associated with assets recorded on the Corporation’s Consolidated Balance Sheet but also potential losses associated with off-balance sheet commitments such as unfunded liquidity commitments and other contractual arrangements. The Corporation’s maximum loss exposure does not include losses previously recognized through write-downs of assets.

The Corporation invests in asset-backed securities (ABS) issued by third-party VIEs with which it has no other form of involvement. These securities are included in Note 2 – Trading Account Assets and Liabilities and Note 4 – Securities. In addition, the Corporation uses VIEs such as trust preferred securities trusts in connection with its funding activities. For additional information, see Note 13 – Long-term Debt to the Consolidated Financial Statements of the Corporation's 2011 Annual Report on Form 10-K. The Corporation also uses VIEs in the form of synthetic securitization vehicles to mitigate a portion of the credit risk on its residential mortgage loan portfolio, as described in Note 5 – Outstanding Loans and Leases. The Corporation uses VIEs, such as cash funds managed within Global Wealth & Investment Management, to provide investment opportunities for clients. These VIEs, which are not consolidated by the Corporation, are not included in the tables within this Note.

Except as described below and in Note 8 – Securitizations and Other Variable Interest Entities to the Consolidated Financial Statements of the Corporation's 2011 Annual Report on Form 10-K, the Corporation did not provide financial support to consolidated or unconsolidated VIEs during the three months ended March 31, 2012 or the year ended December 31, 2011 that it was not previously contractually required to provide, nor does it intend to do so.

Mortgage-related Securitizations

First-lien Mortgages

As part of its mortgage banking activities, the Corporation securitizes a portion of the first-lien residential mortgage loans it originates or purchases from third parties, generally in the form of MBS guaranteed by government-sponsored enterprises, FNMA and FHLMC (collectively the GSEs), or GNMA in the case of Federal Housing Administration (FHA)-insured and U.S. Department of Veterans Affairs (VA)-guaranteed mortgage loans. Securitization usually occurs in conjunction with or shortly after loan closing or purchase. In addition, the Corporation may, from time to time, securitize commercial mortgages it originates or purchases from other entities. The Corporation typically services the loans it securitizes. Further, the Corporation may retain beneficial interests in the securitization trusts including senior and subordinate securities and equity tranches issued by the trusts. Except as described below and in Note 8 – Representations and Warranties Obligations and Corporate Guarantees, the Corporation does not provide guarantees or recourse to the securitization trusts other than standard representations and warranties.

The table below summarizes select information related to first-lien mortgage securitizations for the three months ended March 31, 2012 and 2011.

First-lien Mortgage Securitizations
 
 
 
 
Residential Mortgage - Agency
 
Commercial Mortgage
 
Three Months Ended March 31
(Dollars in millions)
2012
2011
 
2012
2011
Cash proceeds from new securitizations (1)
$
6,338

$
53,081

 
$
325

$

Gain (loss) on securitizations, net of hedges (2)
(17
)
172

 


(1) 
The Corporation sells residential mortgage loans to GSEs in the normal course of business and receives MBS in exchange which may then be sold into the market to third-party investors for cash proceeds.
(2) 
Substantially all of the first-lien residential mortgage loans securitized are initially classified as LHFS and accounted for under the fair value option. As such, gains are recognized on these LHFS prior to securitization. During the three months ended March 31, 2012 and 2011, the Corporation recognized $319 million and $1.1 billion of gains on these LHFS, net of hedges.

The Corporation recognizes consumer MSRs from the sale or securitization of first-lien mortgage loans. Servicing fee and ancillary fee income on consumer mortgage loans serviced, including securitizations where the Corporation has continuing involvement, were $1.3 billion and $1.6 billion during the three months ended March 31, 2012 and 2011. Servicing advances on consumer mortgage loans, including securitizations where the Corporation has continuing involvement, were $25.5 billion and $26.0 billion at March 31, 2012 and December 31, 2011. The Corporation may have the option to repurchase delinquent loans out of securitization trusts, which reduces the amount of servicing advances it is required to make. During the three months ended March 31, 2012 and 2011, $195 million and $5.8 billion of loans were repurchased from first-lien securitization trusts as a result of loan delinquencies or in order to perform modifications. The majority of these loans repurchased were FHA-insured mortgages collateralizing GNMA securities. In addition, the Corporation has retained commercial MSRs from the sale or securitization of commercial mortgage loans. Servicing fee and ancillary fee income on commercial mortgage loans serviced, including securitizations where the Corporation has continuing involvement, was $1 million and $3 million during the three months ended March 31, 2012 and 2011. Servicing advances on commercial mortgage loans, including securitizations where the Corporation has continuing involvement, were $167 million and $152 million at March 31, 2012 and December 31, 2011. For additional information on MSRs, see Note 18 – Mortgage Servicing Rights.

The table below summarizes select information related to first-lien mortgage securitization trusts in which the Corporation held a variable interest at March 31, 2012 and December 31, 2011.

First-lien VIEs
 
 
 
 
 
 
 
 
Residential Mortgage
 
 
 
 
 
 
Non-Agency
 
 
 
Agency
 
Prime
 
Subprime
 
Alt-A
 
Commercial Mortgage
(Dollars in millions)
March 31
2012
December 31
2011
 
March 31
2012
December 31
2011
 
March 31
2012
December 31
2011
 
March 31
2012
December 31
2011
 
March 31
2012
December 31
2011
Unconsolidated VIEs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Maximum loss exposure (1)
$
35,849

$
37,519

 
$
2,005

$
2,375

 
$
276

$
289

 
$
471

$
506

 
$
751

$
981

On-balance sheet assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior securities held (2):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Trading account assets
$
8,828

$
8,744

 
$
88

$
94

 
$
13

$
3

 
$
327

$
343

 
$
10

$
21

AFS debt securities
27,021

28,775

 
1,648

2,001

 
177

174

 
144

163

 
649

846

Subordinate securities held (2):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Trading account assets


 


 
64

30

 


 
2

3

AFS debt securities


 
25

26

 
12

30

 


 


Residual interests held


 
11

8

 

9

 


 
26

43

Total retained positions
$
35,849

$
37,519

 
$
1,772

$
2,129

 
$
266

$
246

 
$
471

$
506

 
$
687

$
913

Principal balance outstanding (3)
$
1,092,283

$
1,198,766

 
$
58,205

$
61,207

 
$
71,581

$
73,949

 
$
97,814

$
101,622

 
$
70,151

$
76,645

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated VIEs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Maximum loss exposure (1)
$
50,033

$
50,648

 
$
421

$
450

 
$
422

$
419

 
$

$

 
$

$

On-balance sheet assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans and leases
$
49,331

$
50,159

 
$
1,258

$
1,298

 
$
946

$
892

 
$

$

 
$

$

Allowance for loan and lease losses
(6
)
(6
)
 


 


 


 


Loans held-for-sale


 


 
632

622

 


 


All other assets
708

495

 
90

63

 
63

59

 


 


Total assets
$
50,033

$
50,648

 
$
1,348

$
1,361

 
$
1,641

$
1,573

 
$

$

 
$

$

On-balance sheet liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial paper and other short-term borrowings
$

$

 
$

$

 
$
663

$
650

 
$

$

 
$

$

Long-term debt


 
1,347

1,360

 
961

911

 


 


All other liabilities


 


 

57

 


 


Total liabilities
$

$

 
$
1,347

$
1,360

 
$
1,624

$
1,618

 
$

$

 
$

$

(1) 
Maximum loss exposure excludes the liability for representations and warranties obligations and corporate guarantees and also excludes servicing advances and MSRs. For more information, see Note 8 – Representations and Warranties Obligations and Corporate Guarantees and Note 18 – Mortgage Servicing Rights.
(2) 
As a holder of these securities, the Corporation receives scheduled principal and interest payments. During the three months ended March 31, 2012 and 2011, there were no OTTI losses recorded on those securities classified as AFS debt securities.
(3) 
Principal balance outstanding includes loans the Corporation transferred with which the Corporation has continuing involvement, which may include servicing the loans.

Home Equity Loans

The Corporation retains interests in home equity securitization trusts to which it transferred home equity loans. These retained interests include senior and subordinate securities and residual interests. In addition, the Corporation may be obligated to provide subordinate funding to the trusts during a rapid amortization event. The Corporation also services the loans in the trusts. Except as described below and in Note 8 – Representations and Warranties Obligations and Corporate Guarantees, the Corporation does not provide guarantees or recourse to the securitization trusts other than standard representations and warranties. There were no securitizations of home equity loans during the three months ended March 31, 2012 and 2011. All of the home equity trusts have entered the amortization phase, and accordingly, there were no collections reinvested in revolving period securitizations for the three months ended March 31, 2012 and 2011.

The table below summarizes select information related to home equity loan securitization trusts in which the Corporation held a variable interest at March 31, 2012 and December 31, 2011.

Home Equity Loan VIEs
 
 
 
 
 
March 31, 2012
 
December 31, 2011
(Dollars in millions)
Consolidated
VIEs
 
Unconsolidated
VIEs
 
Total
 
Consolidated
VIEs
 
Unconsolidated
VIEs
 
Total
Maximum loss exposure (1)
$
2,592

 
$
7,236

 
$
9,828

 
$
2,672

 
$
7,563

 
$
10,235

On-balance sheet assets
 
 
 
 
 
 
 
 
 
 
 
Trading account assets
$

 
$
5

 
$
5

 
$

 
$
5

 
$
5

AFS debt securities

 
14

 
14

 

 
13

 
13

Loans and leases
2,859

 

 
2,859

 
2,975

 

 
2,975

Allowance for loan and lease losses
(267
)
 

 
(267
)
 
(303
)
 

 
(303
)
Total
$
2,592

 
$
19

 
$
2,611

 
$
2,672

 
$
18

 
$
2,690

On-balance sheet liabilities
 
 
 
 
 
 
 
 
 
 
 
Long-term debt
$
2,966

 
$

 
$
2,966

 
$
3,081

 
$

 
$
3,081

All other liabilities
76

 

 
76

 
66

 

 
66

Total
$
3,042

 
$

 
$
3,042

 
$
3,147

 
$

 
$
3,147

Principal balance outstanding
$
2,859

 
$
13,871

 
$
16,730

 
$
2,975

 
$
14,422

 
$
17,397

(1) 
For unconsolidated VIEs, the maximum loss exposure includes outstanding trust certificates issued by trusts in rapid amortization, net of recorded reserves, and excludes the liability for representations and warranties obligations and corporate guarantees.

Included in the table above are consolidated and unconsolidated home equity loan securitizations that have entered a rapid amortization period and for which the Corporation is obligated to provide subordinated funding. During this period, cash payments from borrowers are accumulated to repay outstanding debt securities and the Corporation continues to make advances to borrowers when they draw on their lines of credit. For additional information, see Note 8 – Securitizations and Other Variable Interest Entities to the Consolidated Financial Statements of the Corporation's 2011 Annual Report on Form 10-K. At March 31, 2012 and December 31, 2011, home equity loan securitization transactions in rapid amortization for which the Corporation has a subordinated funding obligation, including both consolidated and unconsolidated trusts, had $10.2 billion and $10.7 billion of trust certificates outstanding. This amount is significantly greater than the amount the Corporation expects to fund. The charges that will ultimately be recorded as a result of the rapid amortization events depend on the undrawn available credit on the home equity lines, which totaled $417 million and $460 million at March 31, 2012 and December 31, 2011, as well as performance of the loans, the amount of subsequent draws and the timing of related cash flows. At March 31, 2012 and December 31, 2011, the reserve for losses on expected future draw obligations on the home equity loan securitizations in rapid amortization for which the Corporation has a subordinated funding obligation was $63 million and $69 million.

The Corporation has consumer MSRs from the sale or securitization of home equity loans. The Corporation recorded $17 million of servicing fee income related to home equity loan securitizations during both the three months ended March 31, 2012 and 2011.
Credit Card Securitizations

The Corporation securitizes originated and purchased credit card loans. The Corporation’s continuing involvement with the securitization trusts includes servicing the receivables, retaining an undivided interest (seller’s interest) in the receivables, and holding certain retained interests including senior and subordinate securities, discount receivables, subordinate interests in accrued interest and fees on the securitized receivables, and cash reserve accounts. The seller’s interest in the trusts, which is pari passu to the investors’ interest, and the discount receivables are classified in loans and leases.

The table below summarizes select information related to credit card securitization trusts in which the Corporation held a variable interest at March 31, 2012 and December 31, 2011.

Credit Card VIEs
 
 
 
(Dollars in millions)
March 31
2012
 
December 31
2011
Consolidated VIEs
 
 
 
Maximum loss exposure
$
38,076

 
$
38,282

On-balance sheet assets
 
 
 
Derivative assets
$
400

 
$
788

Loans and leases (1)
70,019

 
74,793

Allowance for loan and lease losses
(4,226
)
 
(4,742
)
All other assets (2)
580

 
723

Total
$
66,773

 
$
71,562

On-balance sheet liabilities
 
 
 
Long-term debt
$
28,612

 
$
33,076

All other liabilities
85

 
204

Total
$
28,697

 
$
33,280

Trust loans
$
70,019

 
$
74,793

(1) 
At March 31, 2012 and December 31, 2011, loans and leases included $29.3 billion and $28.7 billion of seller’s interest and $618 million and $1.0 billion of discount receivables.
(2) 
At March 31, 2012 and December 31, 2011, all other assets included restricted cash accounts and unbilled accrued interest and fees.

The Corporation holds subordinate securities with a notional principal amount of $11.1 billion and a stated interest rate of zero percent issued by certain credit card securitization trusts. In addition, during 2010 and 2009 the Corporation elected to designate a specified percentage of new receivables transferred to the trusts as “discount receivables” such that principal collections thereon are added to finance charges which increases the yield in the trust. Through the designation of newly transferred receivables as discount receivables, the Corporation subordinated a portion of its seller's interest to the investors' interest. These actions were taken to address the decline in the excess spread of the U.S. and U.K. credit card securitization trusts.
Other Asset-backed Securitizations


Other asset-backed securitizations include resecuritization trusts, municipal bond trusts, and automobile and other securitization trusts. The table below summarizes select information related to other asset-backed securitizations in which the Corporation held a variable interest at March 31, 2012 and December 31, 2011.

Other Asset-backed VIEs
 
 
 
 
 
 
 
 
 
 
 
 
Resecuritization Trusts
 
Municipal Bond Trusts
 
Automobile and Other
Securitization Trusts
(Dollars in millions)
March 31
2012
 
December 31
2011
 
March 31
2012
 
December 31
2011
 
March 31
2012
 
December 31
2011
Unconsolidated VIEs
 
 
 
 
 
 
 
 
 
 
 
Maximum loss exposure
$
26,110

 
$
31,140

 
$
3,611

 
$
3,752

 
$
91

 
$
93

On-balance sheet assets
 
 
 
 
 
 
 
 
 
 
 
Senior securities held (1, 2):
 
 
 
 
 
 
 
 
 
 
 
Trading account assets
$
1,661

 
$
2,595

 
$
208

 
$
228

 
$

 
$

AFS debt securities
24,301

 
27,616

 

 

 
79

 
81

Subordinate securities held (1, 2):
 
 
 
 
 
 
 
 
 
 
 
Trading account assets
1

 

 

 

 

 

AFS debt securities
70

 
544

 

 

 

 

Residual interests held (3)
77

 
385

 

 

 

 

All other assets

 

 

 

 
12

 
12

Total retained positions
$
26,110

 
$
31,140

 
$
208

 
$
228

 
$
91

 
$
93

Total assets of VIEs
$
52,010

 
$
60,459

 
$
5,911

 
$
5,964

 
$
640

 
$
668

 
 
 
 
 
 
 
 
 
 
 
 
Consolidated VIEs
 
 
 
 
 
 
 
 
 
 
 
Maximum loss exposure
$

 
$

 
$
3,310

 
$
3,901

 
$
1,075

 
$
1,087

On-balance sheet assets
 
 
 
 
 
 
 
 
 
 
 
Trading account assets
$

 
$

 
$
3,310

 
$
3,901

 
$

 
$

Loans and leases

 

 

 

 
4,218

 
4,923

Allowance for loan and lease losses

 

 

 

 
(5
)
 
(7
)
All other assets

 

 

 

 
175

 
168

Total assets
$

 
$

 
$
3,310

 
$
3,901

 
$
4,388

 
$
5,084

On-balance sheet liabilities
 
 
 
 
 
 
 
 
 
 
 
Commercial paper and other short-term borrowings
$

 
$

 
$
4,873

 
$
5,127

 
$

 
$

Long-term debt

 

 

 

 
3,308

 
3,992

All other liabilities

 

 

 

 
95

 
90

Total liabilities
$

 
$

 
$
4,873

 
$
5,127

 
$
3,403

 
$
4,082

(1) 
As a holder of these securities, the Corporation receives scheduled principal and interest payments. During the three months ended March 31, 2012 and 2011, there were no OTTI losses recorded on those securities classified as AFS debt securities.
(2) 
The retained senior and subordinate securities were valued using quoted market prices or observable market inputs (Level 2 of the fair value hierarchy).
(3) 
The retained residual interests are carried at fair value which was derived using model valuations (Level 2 of the fair value hierarchy).

Resecuritization Trusts

The Corporation transfers existing securities, typically MBS, into resecuritization vehicles at the request of customers seeking securities with specific characteristics. The Corporation may also resecuritize securities within its investment portfolio for purposes of improving liquidity and capital, and managing credit or interest rate risk. Generally, there are no significant ongoing activities performed in a resecuritization trust and no single investor has the unilateral ability to liquidate the trust.

The Corporation resecuritized $9.9 billion and $2.5 billion of securities during the three months ended March 31, 2012 and 2011 and net gains on sales totaled zero and $3 million. The Corporation consolidates a resecuritization trust if it has sole discretion over the design of the trust, including the identification of securities to be transferred in and the structure of securities to be issued, and also retains a variable interest that could potentially be significant to the trust. If one or a limited number of third-party investors share responsibility for the design of the trust and purchase a significant portion of securities, including subordinate securities issued by non-agency trusts, the Corporation does not consolidate the trust. There were no consolidated resecuritization trusts at March 31, 2012 and December 31, 2011.

Municipal Bond Trusts

The Corporation administers municipal bond trusts that hold highly-rated, long-term, fixed-rate municipal bonds. A majority of the bonds are rated AAA or AA and some benefit from insurance provided by third parties. The trusts obtain financing by issuing floating-rate trust certificates that reprice on a weekly or other basis to third-party investors. The Corporation may serve as remarketing agent and/or liquidity provider for the trusts. The floating-rate investors have the right to tender the certificates at specified dates, often with as little as seven days’ notice. Should the Corporation be unable to remarket the tendered certificates, it is generally obligated to purchase them at par under standby liquidity facilities unless the bond’s credit rating has declined below investment-grade or there has been an event of default or bankruptcy of the issuer and insurer.

The Corporation also provides credit enhancement to investors in certain municipal bond trusts whereby the Corporation guarantees the payment of interest and principal on floating-rate certificates issued by these trusts in the event of default by the issuer of the underlying municipal bond. If a customer holds the residual interest in a trust, that customer typically has the unilateral ability to liquidate the trust at any time, while the Corporation typically has the ability to trigger the liquidation of that trust if the market value of the bonds held in the trust declines below a specified threshold. This arrangement is designed to limit market losses to an amount that is less than the customer’s residual interest, effectively preventing the Corporation from absorbing losses incurred on assets held within that trust.

During the three months ended March 31, 2012 and 2011, the Corporation was the transferor of assets into unconsolidated municipal bond trusts and received cash proceeds from new securitizations of $75 million and $67 million. At both March 31, 2012 and December 31, 2011, the principal balance outstanding for unconsolidated municipal bond securitization trusts for which the Corporation was transferor was $2.5 billion.

The Corporation’s liquidity commitments to unconsolidated municipal bond trusts, including those for which the Corporation was transferor, totaled $3.4 billion and $3.5 billion at March 31, 2012 and December 31, 2011. The weighted-average remaining life of bonds held in the trusts at March 31, 2012 was 8.9 years. There were no material write-downs or downgrades of assets or issuers during the three months ended March 31, 2012 and 2011.

Automobile and Other Securitization Trusts

The Corporation transfers automobile and other loans into securitization trusts, typically to improve liquidity or manage credit risk. At March 31, 2012, the Corporation serviced assets or otherwise had continuing involvement with automobile and other securitization trusts with outstanding balances of $5.0 billion, including trusts collateralized by automobile loans of $3.3 billion, student loans of $1.1 billion, and other loans and receivables of $640 million. At December 31, 2011, the Corporation serviced assets or otherwise had continuing involvement with automobile and other securitization trusts with outstanding balances of $5.8 billion, including trusts collateralized by automobile loans of $3.9 billion, student loans of $1.2 billion, and other loans and receivables of $668 million.

Collateralized Debt Obligation Vehicles

CDO vehicles hold diversified pools of fixed-income securities, typically corporate debt or ABS, which they fund by issuing multiple tranches of debt and equity securities. Synthetic CDOs enter into a portfolio of CDS to synthetically create exposure to fixed-income securities. CLOs, which are a subset of CDOs, hold pools of loans, typically corporate loans or commercial mortgages. CDOs are typically managed by third-party portfolio managers. The Corporation transfers assets to these CDOs, holds securities issued by the CDOs and may be a derivative counterparty to the CDOs, including a credit default swap counterparty for synthetic CDOs. The Corporation has also entered into total return swaps with certain CDOs whereby the Corporation absorbs the economic returns generated by specified assets held by the CDO. The Corporation receives fees for structuring CDOs and providing liquidity support for super senior tranches of securities issued by certain CDOs. No third parties provide a significant amount of similar commitments to these CDOs.

The table below summarizes select information related to CDO vehicles in which the Corporation held a variable interest at March 31, 2012 and December 31, 2011.

CDO Vehicle VIEs
 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2012
 
December 31, 2011
(Dollars in millions)
Consolidated
 
Unconsolidated
 
Total
 
Consolidated
 
Unconsolidated
 
Total
Maximum loss exposure
$
2,249

 
$
2,009

 
$
4,258

 
$
1,695

 
$
2,272

 
$
3,967

On-balance sheet assets
 
 
 
 
 
 
 
 
 
 
 
Trading account assets
$
1,975

 
$
413

 
$
2,388

 
$
1,392

 
$
461

 
$
1,853

Derivative assets
274

 
531

 
805

 
452

 
678

 
1,130

All other assets

 
89

 
89

 

 
96

 
96

Total
$
2,249

 
$
1,033

 
$
3,282

 
$
1,844

 
$
1,235

 
$
3,079

On-balance sheet liabilities
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities
$

 
$
14

 
$
14

 
$

 
$
11

 
$
11

Long-term debt
2,883

 
2

 
2,885

 
2,712

 
2

 
2,714

Total
$
2,883

 
$
16

 
$
2,899

 
$
2,712

 
$
13

 
$
2,725

Total assets of VIEs
$
2,249

 
$
30,328

 
$
32,577

 
$
1,844

 
$
32,903

 
$
34,747



The Corporation’s maximum loss exposure of $4.3 billion at March 31, 2012 included $305 million of super senior CDO exposure, $2.1 billion of exposure to CDO financing facilities and $1.9 billion of other non-super senior exposure. This exposure is calculated on a gross basis and does not reflect any benefit from insurance purchased from third parties. The CDO financing facilities, which are consolidated, obtain funding from third parties for CDO positions which are principally classified in trading account assets on the Corporation’s Consolidated Balance Sheet. The CDO financing facilities’ long-term debt at March 31, 2012 totaled $2.9 billion, all of which has recourse to the general credit of the Corporation. The Corporation’s maximum loss exposure is significantly less than the total assets of the CDO vehicles in the table above because the Corporation typically has exposure to only a portion of the total assets.

At March 31, 2012, the Corporation had $2.2 billion of aggregate liquidity exposure to CDOs. This amount includes $557 million of commitments to CDOs to provide funding for super senior exposures and $1.7 billion notional amount of derivative contracts with unconsolidated VIEs, principally CDO vehicles, which hold non-super senior CDO debt securities or other debt securities on the Corporation’s behalf. See Note 10 – Commitments and Contingencies for additional information. The Corporation's liquidity exposure to CDOs at March 31, 2012 is included in the table above to the extent that the Corporation sponsored the CDO vehicle or the liquidity exposure is more than insignificant compared to total assets of the CDO vehicle. Liquidity exposure included in the table is reported net of previously recorded losses.

Customer Vehicles

Customer vehicles include credit-linked and equity-linked note vehicles, repackaging vehicles and asset acquisition vehicles, which are typically created on behalf of customers who wish to obtain market or credit exposure to a specific company or financial instrument.

The table below summarizes select information related to customer vehicles in which the Corporation held a variable interest at March 31, 2012 and December 31, 2011.

Customer Vehicle VIEs
 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2012
 
December 31, 2011
(Dollars in millions)
Consolidated
 
Unconsolidated
 
Total
 
Consolidated
 
Unconsolidated
 
Total
Maximum loss exposure
$
3,139

 
$
1,881

 
$
5,020

 
$
3,264

 
$
2,116

 
$
5,380

On-balance sheet assets
 
 
 
 
 
 
 
 
 
 
 
Trading account assets
$
3,635

 
$
189

 
$
3,824

 
$
3,302

 
$
211

 
$
3,513

Derivative assets
2

 
690

 
692

 

 
905

 
905

Loans and leases
172

 

 
172

 

 

 

Loans held-for-sale
847

 

 
847

 
907

 

 
907

All other assets
1,264

 

 
1,264

 
1,452

 

 
1,452

Total
$
5,920

 
$
879

 
$
6,799

 
$
5,661

 
$
1,116

 
$
6,777

On-balance sheet liabilities
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities
$
4

 
$
47

 
$
51

 
$
4

 
$
42

 
$
46

Commercial paper and other short-term borrowings
62

 

 
62

 

 

 

Long-term debt
4,180

 

 
4,180

 
3,912

 

 
3,912

All other liabilities

 
374

 
374

 
1

 
448

 
449

Total
$
4,246

 
$
421

 
$
4,667

 
$
3,917

 
$
490

 
$
4,407

Total assets of VIEs
$
5,920

 
$
3,545

 
$
9,465

 
$
5,661

 
$
5,302

 
$
10,963



Credit-linked and equity-linked note vehicles issue notes which pay a return that is linked to the credit or equity risk of a specified company or debt instrument. The vehicles purchase high-grade assets as collateral and enter into CDS or equity derivatives to synthetically create the credit or equity risk to pay the specified return on the notes. The Corporation is typically the counterparty for some or all of the credit and equity derivatives and, to a lesser extent, it may invest in securities issued by the vehicles. The Corporation may also enter into interest rate or foreign currency derivatives with the vehicles. The Corporation also had approximately $707 million of other liquidity commitments, including written put options and collateral value guarantees, with unconsolidated credit-linked and equity-linked note vehicles at March 31, 2012.

Repackaging vehicles issue notes that are designed to incorporate risk characteristics desired by customers. The vehicles hold debt instruments such as corporate bonds, convertible bonds or ABS with the desired credit risk profile. The Corporation enters into derivatives with the vehicles to change the interest rate or foreign currency profile of the debt instruments. If a vehicle holds convertible bonds and the Corporation retains the conversion option, the Corporation is deemed to have a controlling financial interest and consolidates the vehicle.

Asset acquisition vehicles acquire financial instruments, typically loans, at the direction of a single customer and obtain funding through the issuance of structured liabilities to the Corporation. At the time the vehicle acquires an asset, the Corporation enters into total return swaps with the customer such that the economic returns of the asset are passed through to the customer. The Corporation is exposed to counterparty credit risk if the asset declines in value and the customer defaults on its obligation to the Corporation under the total return swaps. The Corporation’s risk may be mitigated by collateral or other arrangements. The Corporation consolidates these vehicles because it has the power to manage the assets in the vehicles and holds all of the structured liabilities issued by the vehicles.

The Corporation’s maximum loss exposure from customer vehicles includes the notional amount of credit or equity derivatives to which the Corporation is a counterparty, net of losses previously recorded, and the Corporation’s investment, if any, in securities issued by the vehicles. It has not been reduced to reflect the benefit of offsetting swaps with the customers or collateral arrangements.

Other Variable Interest Entities

Other consolidated VIEs primarily include investment vehicles and leveraged lease trusts. Other unconsolidated VIEs primarily include investment vehicles and real estate vehicles.

The table below summarizes select information related to other VIEs in which the Corporation held a variable interest at March 31, 2012 and December 31, 2011.

Other VIEs
 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2012
 
December 31, 2011
(Dollars in millions)
Consolidated
 
Unconsolidated
 
Total
 
Consolidated
 
Unconsolidated
 
Total
Maximum loss exposure
$
5,681

 
$
7,002

 
$
12,683

 
$
7,429

 
$
7,286

 
$
14,715

On-balance sheet assets
 
 
 
 
 
 
 
 
 
 
 
Derivative assets
433

 
404

 
837

 
394

 
440

 
834

AFS debt securities

 
59

 
59

 

 
62

 
62

Loans and leases
4,939

 
328

 
5,267

 
5,154

 
357

 
5,511

Allowance for loan and lease losses
(5
)
 
(1
)
 
(6
)
 
(8
)
 
(1
)
 
(9
)
Loans held-for-sale
98

 
539

 
637

 
106

 
598

 
704

All other assets
238

 
5,673

 
5,911

 
1,809

 
5,823

 
7,632

Total
$
5,703

 
$
7,002

 
$
12,705

 
$
7,455

 
$
7,279

 
$
14,734

On-balance sheet liabilities
 
 
 
 
 
 
 
 
 
 
 
Long-term debt
10

 

 
10

 
10

 

 
10

All other liabilities
718

 
1,573

 
2,291

 
694

 
1,705

 
2,399

Total
$
728

 
$
1,573

 
$
2,301

 
$
704

 
$
1,705

 
$
2,409

Total assets of VIEs
$
5,703

 
$
10,749

 
$
16,452

 
$
7,455

 
$
11,055

 
$
18,510



Investment Vehicles

The Corporation sponsors, invests in or provides financing to a variety of investment vehicles that hold loans, real estate, debt securities or other financial instruments and are designed to provide the desired investment profile to investors. At March 31, 2012 and December 31, 2011, the Corporation’s consolidated investment vehicles had total assets of $872 million and $2.6 billion. The Corporation also held investments in unconsolidated vehicles with total assets of $5.3 billion and $5.5 billion at March 31, 2012 and December 31, 2011. The Corporation’s maximum loss exposure associated with both consolidated and unconsolidated investment vehicles totaled $2.5 billion and $4.4 billion at March 31, 2012 and December 31, 2011 comprised primarily of on-balance sheet assets less non-recourse liabilities.

Leveraged Lease Trusts

The Corporation’s net investment in consolidated leveraged lease trusts totaled $4.8 billion at both March 31, 2012 and December 31, 2011. The trusts hold long-lived equipment such as rail cars, power generation and distribution equipment, and commercial aircraft. The Corporation structures the trusts and holds a significant residual interest. The net investment represents the Corporation’s maximum loss exposure to the trusts in the unlikely event that the leveraged lease investments become worthless. Debt issued by the leveraged lease trusts is non-recourse to the Corporation. The Corporation has no liquidity exposure to these leveraged lease trusts.

Real Estate Vehicles

The Corporation held investments in unconsolidated real estate vehicles of $5.3 billion and $5.4 billion at March 31, 2012 and December 31, 2011, which primarily consisted of investments in unconsolidated limited partnerships that finance the construction and rehabilitation of affordable rental housing and commercial real estate. An unrelated third party is typically the general partner and has control over the significant activities of the partnership. The Corporation earns a return primarily through the receipt of tax credits allocated to the real estate projects. The Corporation’s risk of loss is mitigated by policies requiring that the project qualify for the expected tax credits prior to making its investment. The Corporation may from time to time be asked to invest additional amounts to support a troubled project. Such additional investments have not been and are not expected to be significant.

Other Asset-backed Financing Arrangements

The Corporation transferred pools of securities to certain independent third parties and provided financing for up to 75 percent of the purchase price under asset-backed financing arrangements. At March 31, 2012 and December 31, 2011, the Corporation’s maximum loss exposure under these financing arrangements was $4.5 billion and $4.7 billion, substantially all of which was classified as loans on the Corporation’s Consolidated Balance Sheet. All principal and interest payments have been received when due in accordance with their contractual terms. These arrangements are not included in the Other VIEs table because the purchasers are not VIEs.